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I'm sure you might have read Goldman bought a billion or so worth of shares from Facebook, and is now reselling them to clients, charging, of course a 4% placement fee, 5% of profits and an annual servicing fee.

From a WSJ article this morning:

Some additional details about Facebook's performance emerged late Wednesday as part of an offering document. According to people familiar with the document, Facebook had net income of $200 million in 2009 on revenue of $777 million. Figures for 2010 weren't disclosed, but analysts have said the company's revenue last year could be as much as $2 billion, fueled by advertising growth.

I got out excel this morning to figure out, roughly, what growth the market is pricing into facebook to justify its current $50 billion dollar valuation. Here's what I did:

1) The article states facebook earned $200 MM in 2009 on revenue of $777 million. That's a 25.7% net margin. It also said analyst have guessed - optimistically I'm sure - the 2010 numbers were almost 3x higher, with revenue at $2 billion. I took the same 25.7% margin on $2 billion to arrive at, simplistically, $514 million of cash flow. Notably, this would place the current $50 billion valuation at 100x earnings. WOW. That's worse than

2) I grew this cash flow by 30% (thirty percent) for 15 years, so facebook is producing 31 billion in annual cash 15 years out. A fifteen multiple on that would mean a market cap of $514 billion. The US economy's $14 trillion GDP growing at 3% for 15 years would put it at $22 billion at that time, so facebook would comprise over 2% of the US economy.

3) Discounting those cash flows by what rate would get us to a $50 billion current net present value? 18.75%.

Facebook is egregiously overpriced at $50 billion based on a number of metrics - notably current cash flow and expected future growth. It it was publicly traded, it might be my first short.
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